Microsoft Bears Underestimate the ‘Enterprise Moat’

Microsoft reported a solid fiscal second quarter on Thursday with revenue and earnings that were generally above consensus estimates. However, concerns over relatively tepid growth in the Windows segment overshadowed positive results elsewhere in the eyes of market participants leading to a nearly 4 percent drop in the stock price today. Read this article for our view of the results and competitive threats to Microsoft’s moat.

Investors Price In Failure of Windows Phone 7 Rollout

We have outlined the bullish case for Microsoft based on the depressed valuation of the shares, positive recent financial results, and expected strong results this fiscal year due to a corporate refresh cycle that will take advantage of Windows 7 and Office 2010 after a period in which upgrades were delayed due to both real and perceived shortcomings in the Windows Vista operating system. However, despite attractive fundamentals, the market is currently focused on smart phones and appears to be assuming that Microsoft’s new operating system will utterly fail to gain any meaningful share from Apple’s iPhone or Google’s Android operating system. Is this negative sentiment warranted or a potential opportunity for long term investors?

Microsoft Plans Debt Sale to Fund Dividends and Buybacks

Microsoft shares were sharply higher in late trading today after Bloomberg reported that the company is planning to sell debt this year to pay for dividends and share repurchases. Why would a company with nearly $37 billion in cash on the balance sheet need to issue debt in order to pay dividends or fund repurchases? The answer is that much of Microsoft’s cash hoard is held overseas and the company would have to pay taxes on earnings that are repatriated to the United States. Read this article for more details.


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